Original Date: 04/07/1997
Revision Date: 04/14/2003
Best Practice : Legal Mechanisms - How To Do Business With Industry
Rock Island Arsenal’s (RIA’s) mission is to support military readiness by manufacturing parts and equipment that directly support the Army and other Department of Defense (DOD) agencies. As defense budgets have declined, demand for military products and services has been scaled back along with the Arsenal’s workload. To counter this trend, RIA has looked for alternative ways to utilize its excess industrial capacity to preserve jobs for its employees and maintain critical skills and capabilities that will be required in periods of increased national security needs. Alternatives explored by RIA include foreign military sales, business relationships with industry, and selling manufactured goods and services outside DOD. These types of activities are non-traditional for DOD industrial activities, and require special care to ensure that they do not violate existing laws or policies.
Although volumes of laws and regulations govern DOD procurement and acquisition, very little exists in the way of regulations or case law governing how government industrial facilities can operate in the industrial and commercial realms. RIA has been a leader in developing effective ways to work with industry and the commercial sector that meet existing laws and requirements. Only a handful of statutes address direct sales by federal activities. In 1993, federal law was amended to allow arsenals and depots to sell manufactured goods and services outside DOD. However, there are specific constraints. The work cannot interfere with DOD work or the installation’s military mission. Services sold must relate to an article authorized to be sold. The article or service must not be commercially available, and it must be in the public interest to do the work. Purchasers who contract with the Arsenal must agree to hold the U.S. harmless for injury or damage to persons or property. RIA faces many constraints that commercial companies do not. The Arsenal is not allowed to make a profit or lose money on a job, so great care must be taken in costing and pricing. Work must be fully funded by the customer prior to commencing a job so the Arsenal can normally only undertake projects on a cost reimbursable basis rather than the industry norm of firm fixed price.
In spite of the many limitations and challenges, RIA has successfully undertaken many non-traditional projects that have utilized excess capacity and kept employees on the job. These projects have included partnering with industry; subcontracting for defense contractors; working with General Services Administration and commercial tool manufacturers to produce customized tool sets for the Army and Air Force; building and refurbishing specialized vehicles; testing and calibrating equipment for commercial companies; providing technical assistance and consulting services; leasing facilities to industry; and many other applications. The key to success has been the willingness by Legal, Contracts, and the production directorates to apply common sense and creative thinking within the framework of statutory and policy constraints. Cooperation and innovative approaches have provided new business opportunities that are excellent models for redefining the way government industrial facilities do business in today’s changing environment.
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